Danske's Richest Clients Are Given a Guarantee on Negative Rates

(Bloomberg) -- Danske Bank A/S, hampered by negative interest rates for longer than any European peer, promised wealthy depositors it will resist a trend to pass the burden on to them.

Christian Baltzer, the chief financial officer of Copenhagen-based Danske, told Bloomberg that charging people to keep their deposits at Denmark’s biggest bank could pose a risk to society. Some of Europe’s top wealth managers, including UBS Group AG and Credit Suisse AG, have introduced a fee on large cash balances.

Denmark was the first country in 2012 to adopt negative interest rates, when its central bank reduced the benchmark rate to minus 0.2% in July 2012, just before Mario Draghi made his “whatever it takes” pledge at the European Central Bank. With bond yields and many other rates close to or below zero around the world, investors’ options have narrowed dramatically.

Danske is committing to absorbing the cost of negative rates as the monetary regime grows ever more entrenched. The bank fell 4.6% on Wednesday, driving its share price down to the lowest level since August 2012. It was a bad day for banks in general, with the Bloomberg index for European financial stocks dropping 2.9%.

Danske has “no plans to introduce negative interest rates on personal savings or current accounts,” Baltzer said.

Danske acknowledges that operating conditions are difficult for the financial industry. But charging private customers to hold their deposits would create new risks, including eroding progress made toward developing a cashless society, Baltzer said.

“Doing so could have a negative impact at the societal level, including the risk of customers withdrawing more deposits in cash,” he said.

Danske is refusing to take a step that others have deemed unavoidable. UBS plans to charge its Swiss clients an annual fee of 0.6% on deposits of more than 500,000 euros ($560,000). In Denmark, some smaller banks have hinted they are very close to having to pass on the cost of negative rates to retail depositors, while the country’s bankers association has asked the central bank to step in with measures to mitigate the pain.

Danske’s espousal of a socially responsible attitude to interest rates follows sustained criticism of the bank’s role at the heart of a Russian money laundering scandal. The bank has acknowledged that as much as $230 billion in suspicious transactions moved through its branch in Estonia between 2007 and 2015.

Sub-zero rates are becoming almost ubiquitous in the Nordic country. Denmark’s government debt is trading at negative yields across all maturities, with the yield on the 10-year note sinking to minus 0.6%.
Record Negative Rates Force Danish Banks to Ask for Relief

A subject that most banks once treated as taboo is now being openly discussed as the prospect of even lower interest rates looms large. Most analysts expect the European Central Bank to cut its deposit rate by 10 basis points to minus 0.5% next month. Denmark pegs its krone to the euro and has set its main rate at minus 0.65%.

Banks have already passed negative rates on to their corporate clients, but Danske says the risks of doing the same with retail customers are too great for the bank to consider doing so.

--With assistance from Christian Wienberg.

To contact the reporter on this story: Frances Schwartzkopff in Copenhagen at fschwartzko1@bloomberg.net

To contact the editors responsible for this story: Tasneem Hanfi Brögger at tbrogger@bloomberg.net;Paul Sillitoe at psillitoe@bloomberg.net

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